India’s services PMI falls to 51.7 in June: HSBC

The services sector witnessed a moderation in June as the pace of growth in new orders placed at private sector firms was the weakest in the last 50-month period, HSBC said

Output of the country’s services sector slowed down in June due to a decline in new business orders and subdued economic conditions, an HSBC survey showed.


The HSBC/Markit purchasing managers’ index for the services industry, which was released today, fell from May’s three-month high of 53.6 to 51.7 in June.


The services sector, which accounts for around 60% of India’s GDP, witnessed a moderation in June as the pace of growth in new orders placed at private sector firms was the weakest in the last 50-month period, HSBC said.


Moreover, subdued economic conditions were also a major factor behind the deceleration in output growth, HSBC said.


A reading above 50 shows that the sector is expanding, while that below 50 shows that the output in the sector is contracting.


“Service sector activity grew at a slower clip as new business flows moderated, which made businesses less optimistic about the year ahead,” HSBC chief economist for India and ASEAN Leif Eskesen said.


The slower pace of growth in the services sector is reflected in service providers’ subdued optimism towards output growth in the next 12 months.


Earlier this week, the HSBC/Markit manufacturing PMI showed that the manufacturing sector output remained broadly flat in June as new orders declined for the first time in over four years.


Accordingly, the HSBC India Composite Output Index, which maps services and manufacturing activity, fell from 52 in May to 50.9 in June.


“Notwithstanding the slowdown, inflation readings firmed (up) on the back of higher labour and raw material prices, with the depreciation of the rupee also cited as a factor,” Eskesen said.


The rupee last week sank to an all-time low of 60.76 against the dollar on heavy capital outflows and month-end dollar demand from importers.


Rupee slips below 60-mark in early trade

This is the first time since 27th June that the domestic currency has fallen below the 60 level

The rupee on Wednesday fell by 37 paise to again slip below the 60 mark to 60.03 against the dollar in early trade at the Interbank Foreign Exchange market, on heavy dollar demand tracking strengthening of the US currency overseas.


This is the first time since 27th June that the domestic currency has fallen below the 60 level. The rupee had touched an all-time low of 60.76 against the dollar on 26th June.


Forex dealers said besides dollar gaining against other currencies to trade at nearly one-month high in the global markets on strong economic data, a lower opening of the domestic equity market also put pressure on the rupee.


The rupee had depreciated by 14 paise to close at 59.66 against the dollar yesterday on defence-related dollar demand losses in the local stock market.


Meanwhile, the BSE benchmark Sensex fell by 211.54 points, or 1.09%, to 19,252.19 in early trade today.


Where is the rupee headed?

In January 2008 the dollar fetched Rs39.27 and now it is hovering around Rs60, thus losing about 34% of its value. Due to the practically free import policy, relatively free and unrestricted travel abroad, billions of dollars are being utilized, leading to deficits

It is true that Benjamin (Ben) Bernanke, chairman of the US Federal Reserve, caused a worldwide monetary tumble by slowing down the bond buying programme, which in all possibility may come to an end by the close of the year.


This simple indication has resulted in the dollar strengthening against major world currencies.  Since April this year, except for the British pound and the Chinese Renminbi (Yuan, as it is popularly known), a number of currencies such as the Brazilian Real, Rand, Indian Rupee, Mexican and Philippines Pesos, Russian Rouble, Turkish Lira, Indonesian Rupiah, the Malaysian Ringgit, Thai Baht, South Korean Won and the Euro fell by various percentages. The lowest was the Euro at 0.15% while the South African Rand fell by 13.99%.


Each country has its own domestic reasons and relatively poor export performance may have caused this fall apart from the issue of GDP and the rest, but  the very fact that the US may have to slow down the bond buying may have additionally precipitated this fall!


This is an extremely difficult and unpredictable subject to handle and fathom, as so many factors play a role in the process.


As far as the Indian rupee is concerned, first and foremost is the crossing of the Rs60 barrier that had somehow held up for more than two years. And a few days ago, it crossed this threshold.


It may be recalled that in January 2008 the dollar fetched Rs39.27 and now it is hovering around Rs60, thus losing about 34% of its value. Exporters are happy for this windfall gain, but, the importers have to pay so much more to get their goods.


Is this depreciation of the rupee a temporary phenomenon, or is it likely to slide further down to Rs62-Rs65 range?  And, will it stop there and what are the chances for recovery? Very difficult to say and even more difficult to predict!


And what should the government do, what role can the Reserve Bank of India (RBI) play effectively to stop this fall?


The first is the international repercussion due to the worldwide reaction to the Federal Reserve’s move.  On this, none but the US has the control.


Second is the peculiar situation of black market trade that is highly prevalent in the rupee exchange rate due to the ‘hawala’ transactions. As we write this, it has come to light that four trucks carrying money, jewellery, etc from Mumbai to Gujarat were caught with some Rs200 crore worth of these materials, said to be for settlement of ‘hawala’ transactions, and the investigation is still going on. This racket is several decades old and in spite of various attempts, there appears to be no end in sight.


The third important factor is that billions of dollars are remitted back to India every month by the expatriate Indian population working abroad, particularly in the Middle East. No doubt there is substantial transaction of this expatriate wealth that takes the ‘hawala’ route!


Fourth is the huge amount of money that has been stashed away in Switzerland and other countries on which the government has the relevant information, but for reasons known to it, is not making the details pubic. This lot, of course, has escaped the tax net of the government and generally classified as “black money” abroad on which discussions have been going on for years.  It is a separate issue that such large sums of unaccounted, un-taxed money, also known as black money is within the country, running a parallel economy.


Finally, due to the practically free import policy, relatively free and unrestricted travel abroad, billions of dollars are being utilized, leading to deficits. In fact, today, our foreign exchange reserves are now roughly 15% of the GDP, which is one of the lowest in the region.


And, on the top of all these not-too-rosy conditions, general elections are only a few months away.


With all these in the background, what are the steps that can be taken to protect the rupee?  Here are some suggestions for the government:


               a) Consider seriously establishing two rates of exchange for the rupee against the major currencies


               b) instead of allowing the rupee to float, officially devalue the currency and fix a realistic price of exchange. The real value of the rupee may be pegged at about Rs63 to a dollar


                c) this is probably the going rate for ‘hawala’ transactions; such a rate may help to eliminate the ‘hawala’ system altogether


                d) encourage expatriate Indians working (and living permanently abroad) to remit funds through banking channels


                e) such NRI/OCI remittances be given an additional rate of interest benefit, if the FDRs are for three years or more


                f) discourage and restrict items of imports that are easily obtainable from indigenous sources; all such finished goods, if imported, will have to pay a penal rate of import duty over and above existing levels; all items under ‘OGL’ need to be reviewed and curtailed where possible


                g) all imports of essential raw materials, capital goods and maintenance spares, obtained under export incentive replenishment licenses, like the erstwhile schemes, will have a lower exchange rate so as to encourage exports, which will earn higher rupee rates


Unless the government takes serious steps, including the total ban of reckless import of gold, the rupee is heading for a further fall.


(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce and was associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)




4 years ago

The writer needs to do a course in Economics. Imagining penalising foreign imports and not expecting a similar reaction on our exports. If you depreciate the rupee further to 63 - havala channels automatically changes rates to beat the rate.


4 years ago

For starters, the author should address the main issue, how to reduce the imports bill for petroleum products and how to increase exports. It is alleged that there are certain forces who do not want that the indigenous potential for oil and natural gas be tapped to its full extent and who want the high dependency on imports to continue.
Gold hoarding is a result and not the cause for shrinking rupee value.

AK Sharma

4 years ago

Well dollar has virtually become a currency for the world to trade anything.

The need of the time is to get rid of US dollar and replace with a currency which is more stable, maybe with new world currency.

US economy is hurting everyone.

"If US sniffs every country in the world economy gets cold"


Mohan Rao

In Reply to AK Sharma 4 years ago

Thats what Saddam Hussien and Gaddaffi tried to do - float an alternate currency backed by Gold, and I guess you know where they are now.

Mohan Rao

In Reply to AK Sharma 4 years ago

Thats what Saddam Hussien and Gaddaffi tried to do and you know hwere they are now.

Shadi Katyal

In Reply to AK Sharma 4 years ago

Sharma ji,
Such writings have no meaning as Dollar is the world currency and if you are keeping in touch with world trade and banking, you have seen the condition of Euro and there was a talk about Yen at one time.
Instead of looking outside and blaming Dollar why not look what we have achieved in decades except religious feud,quota system and non working parliament. Corruption and red tape to stop the industrialization of the nation.Look across the border and see where China is and where we are when in 1990 China was not even on par with India.
We must learn to find faults with others. Are you not aware that USA is the biggest market still.

Anil Girotra

4 years ago

Idea of having a differential exchange rate for imports and exports is good.Also I feel that some encouragement to FDI in manufacturing sector by having single window clearance and land in backward areas should be put in place.For discouraging Oil import we must encourage exploration of oil and give some tax breaks to such companies which get into this or even develop products which are import substitutes.

ashwin bahl

4 years ago

heading southwards, simple !

Sadanand Patwardhan

4 years ago

Pegging the rupee at Rs. 63/ dollar, which is **probably the going rate for ‘hawala’ transactions (such a rate may help to eliminate the ‘hawala’ system altogether)**, is a preposterous suggestion. The calculus of exchange rates may work on fundamentals in the long term, but in the short run by attacks of panic when currency is falling. Forex markets dwarf all other markets by the sheer volume and it is in no institution or nation's power to influence. IF government were to peg rupee at Rs. 63 as the author suggests, then that would become the NEW NORMAL, and hawala rate may go to Rs. 66. Unless India withdraws rupee from Forex markets, something global capital won't allow, there is no way to defend currency through arbitrary measures. No country has managed to do it. Even the former imperial power Britain.


Shadi Katyal

4 years ago

It is interesting to read that the writer has given 2 main reasons> free imports and 2>travel abroad.Both are not true. Why should an Indian travelling abroad should act like a Fakir as we saw during early days of Currency controls? and secondly why should a citizen not enjoy the quality good from abroad.
The main reason such large fluctuations are non exiting of any industry due to lack of any new Labour and Union Laws./
India has lost her luster with red tape and bureaucracy and mandatory taxes.
Why has industry failed to open any markets.
Beside intellectual;s what we got to export.
Why after 6 decades we are still on such closed economy.
O)new wonders if we have a very limited thinking and are not willing to allow industry to flourish with proper union Laws.
I suggest that writer should go abroad and ask for such limitation of investment and hear the lawlessness and no working ethics.
Even Bangladesh has A better industrial policy and look at the garment industry which used to be best of India.
Time to wake up and find the reason which is simple working ethics,discipline and govt off our backs.
Let us breath freely without Babus and unions around and open door policy for investment.
learn from China as time is not far when we might have to send our Gold to England if such morass continue

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